Four years after housing's collapse, ProSales 100 dealers are starting to pull themselves out of the hole. But further progress could be tough.

2011 ProSales 100

"P.T. Barnum I am not, but I can say confidently that we are in a recovery."

By invoking the name of the 19th century's most famous showman–as well as one of the world's greatest hypemasters–Steve Patterson knows well how hard it is to talk optimistically about construction supply these days. After all, his own Central Valley Builders Supply (CVBS) has seen its revenues shrivel by nearly two-thirds since 2005.

But in 2010, for the first time in five years, Napa, Calif.-based CVBS stopped its fall by holding revenues steady at $40 million. "From my perspective, we are not going to go backwards in the next two or three years," Patterson says.

This year's ProSales 100 bears out Patterson's forecast. Our annual survey of America's leading construction supply operations found that the respondents with the 100 biggest volumes of pro sales reported overall revenue rose 6.2% in 2010 from the year before to reach $24.08 billion. And while the membership of the ProSales 100 changes slightly each year, it's still notable that 2010 marks the first group-wide revenue increase since 2006.

Of the companies in this survey, 64 posted an increase in sales between 2009 and 2010, a sharp contrast with the 10 companies that recorded increases last year. Another 32 had declines in sales, down from the 90 companies that suffered losses in last year's survey. The other four companies in this year's poll said revenues were unchanged.

Two years ago, only two ProSales 100 members experienced jumps of greater than 20%; this year, nine did. And two years ago, 31 companies posted declines of at least 20%. Only four did in 2010.

For the rest, the gains and losses tended to be modest–61 were no more than 10% up or down.

Leading the way was US LBM, the holding company founded in 2009 and comprised mainly of several former Stock Building Supply companies. It grew more than 11 times to $275 million in 2010, in part because it was in operation for only three months in 2009. US LBM's ranking jumped to 14th on this year's list.

Meanwhile, former corporate parent Stock saw its revenues drop 39.7% to $861 million, the biggest percentage decline on this year's list. The shrinkage occurred despite Stock's acquisition last year of two former top 30 companies: Bison Building Materials (No. 16 in 2009) and National Home Centers (No. 26).

In contrast, ABC Supply's acquisition last June of former No. 4 Bradco Supply enabled the specialty dealer to vault into the top spot, with a 51.7% rise in overall sales to $4.07 billion. It's the first time that ProBuild hasn't been No. 1 since 2005–i.e., before Lanoga Corp. and what then was ProBuild merged to become America's biggest full-service lumberyard.

Taking on new operations and growing existing ones also helped SRS Acquisitions, the McKinney, Texas-based roofing supply company, show a sales increase of more than 45% to $350 million. It continues to grow, having acquired one company and opened two new locations by mid-April.

"We were founded in the recession and we were built to thrive, even in a down market," says Dan Tinker, SRS' chief operating officer. Indeed, while the ProSales 100 doesn't measure profit, anecdotal evidence suggests that dealers nationwide have learned how to finish in the black despite today's meager revenues.

Stepping Out

Certainly, nobody is giddy over their prospects–that's hard to do when close to 300 LBM facilities closed across the country in 2010 alone. Indeed, 10 respondents said one of their greatest achievements in 2010 was the fact they had survived. And dealers face huge uncertainties as they seek to sustain the modest growth they've achieved. The biggest question remains what is going to happen in the new-home market.

Nationwide, housing starts remain low, with just 586,900 in 2010, according to the U.S. Census Bureau. While better than the 554,000 starts in 2009, it's still nowhere near the 2.1 million starts recorded in 2005. Hanley Wood Market Intelligence, a sister company to ProSales, predicts starts will rise to 645,000 this year and won't top 1 million until 2014.

"The market has always been cyclical," says Patrick Goebel, president and COO of Star Lumber & Supply, a nine-location dealer based out of Wichita, Kan. "It's amazing: Sometimes as fast as it's dropped, it's climbed back up,"

Goebel says the Wichita area's economy was a bit behind the rest of the country. It was smacked by the recession months after it rippled through the rest of the country. He expects the local economy to to hit bottom soon and then show "just steady, conservative growth from this point moving up. ... We don't believe there is some huge, pent-up demand. We're not that optimistic."

One reason why Goebel is cautious is because of discussions on Capitol Hill to eliminate Fannie Mae and Freddie Mac, the two major government-sponsored enterprises whose securitization work facilitates mortgage lending.

There also are proposals circulating in Washington that would require far more people to make a 20% down payment to buy a home.

"I don't believe there will be as much homeownership," Goebel predicts. "I believe getting a mortgage is much more difficult, and I think more people are renting."

That sober attitude helps explain why ProSales 100 dealers have worked harder at hanging on than on growing, and continued as a group to stay lean. This becomes clear when one considers the results with and without the ABC Supply/Bradco deal.

When one includes the 102 branches that ABC Supply got as a result of the Bradco acquisition, the facility count for the entire ProSales 100 rose by 60, to 3,282. Exclude ABC Supply, however, and it turns out that the rest of the ProSales 100 shed a total of 42 facilities.

Likewise, of the top 80 companies who gave employee counts to the 2010 and 2009 surveys, the number of staffers slipped only 0.4% to 56,436. But if one adds back in the 3,970 employees at the three companies that were acquired–Bradco, Bison, and National Home Centers–2009's total would rise to 60,406. That makes the actual percentage drop in staff for those 80 companies roughly 7%.

At No. 19 Erie Materials in Syracuse, N.Y., company president Chris Neumann has been able to avoid closing any of his 10 facilities and actually added five employees to the staff count, pushing it to 350.

"It would be hard to continue to maintain our employee levels if we weren't keeping sales profits where they're at," says Neumann. While the owners want to be nice guys, "we've got to pay the bills, and so we've got to make a profit in order to keep people employed and productive," he says.